How BlackRock, Google and JPMorgan are approaching crypto

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that yields insights and laughs compounding daily I'm your host Jay Hamilton and today we're joined by Kyle reidhead coner and head of research at milk road to talk about his experience from permissionless and a Founders only Retreat he was on with some big wigs some big brains I'm talking Black Rock Google and many more he's going to share insights from that with you guys which is really profound insights that we have not heard very much yet on the show Kyle good to have you on Jay it's good to be with you in person yeah okay that's what I'm happy about an inperson show with the two of

us also you haven't been on in too long it's been weeks so you guys just like excluded me I don't know you guys let us know I know you guys want to hear more Kyle so let us know in the comments if you guys want more Kyle we'll make sure we get him on the show on a regular basis for you tell me if you want me not we we'll keep bringing on these amazing guests because they're crushing it right now with the guests okay Kai let's just set the context tell us who was at this Retreat that you were at recently so everybody listening has an idea of what that was like yeah so pre permissionless ZK sync actually ran a a retreat let's call it called ZK unplugged and it was a bunch of Founders in the space from really really big companies I don't want

to say all them but let's say ZK snc founder and their team was there we had layer zero we had a list a list of of big companies we had a list of big VCS that were there that spend a lot of money and allocate throughout the space which is always quite interesting and then they brought some non crypto native people as well so this was the CIO of ETFs at Black Rock okay so she's basically runs the entire ETF division at Black Rock and that division is absolutely massive they had the head of web 3 strategy at Google we had some from the crypto sector in at JP Morgan and a slew of others so it was interesting because it wasn't just crypto talk we had all of our like debates on our meme coins good or not as deep in the next big thing should Ai and

crypto be together I mean this is like no matter where you go if you're with crypto people this is the conversation but to bring on these others that are I mean you have the biggest Finance Company in the world you have one of the biggest tech companies in the world and to get their stories of not just how they personally are using or thinking about crypto but how their entire organization of tens of thousands of people are thinking about and using crypto that was just really some incredible information that I didn't expect to get to be honest I didn't know they were going to be there when I showed up I actually had very little details I was just like cool I'll go for a retreat but end being some incredible incredible insights yeah and really excited to share some of these insights today especially Black Rock and Google

being such well recognized Brands and brands that are very active obviously in crypto but not brands that we have been able to hear from so we're going to hear it through your mouth start with black rock CIO yeah what were some of the takeaways that you got from her yeah so a few things so first we actually had a fireside chat with her uh she also spoke at the conference so a lot of what I'm saying is not necessarily hidden secrets or anything she's I think she's open to it so there was a few things she mentioned the first was the story of the ETFs which I thought were quite interesting they had been working on getting this Bitcoin ETF for a long time they had discussed it for a while they said there's actually going to be many crypto ETFs to come so it's not just

Bitcoin and eth they said right now that's all it's going to be because that's where the demand is there isn't demand for others but she says she sees a world where there's going to be a ton of other ETFs without a doubt uh what was really interesting was she talked about the story of of when those ETFs went live if you guys all remember if you were on crypto Twitter there was a bit of a circus I think there was like some fake tweets that said that the black AR ETF was approved and the price went up like 10% which didn't actually happen and so Samar actually said you know crypto Twitter was interesting and it was actually a really good thing because they didn't have to do any marketing usually they have to do a ton of marketing for their ETFs and they said

they actually had to do none because crypto Twitter did it all for them so that was really interesting but then she said on the other side it was also very frustrating and she thought that crypto Twitter was this very interesting and um and weird and a bunch of different words she said she was actually said she was very scared to come to this Retreat that we went to because she knew it was all crypto people and she wasn't quite sure what to expect what was good though is she said at the end of it she messaged us all and said look I was a little bit nervous because of how weird crypto Twitter is but meeting all you guys Founders meeting you know all you VCS and people in the space I realized it's not how it is on crypto Twitter it's much more and it's much bigger and so I

thought that was just quite funny that she she she brought that up but then she went into just like how the success of the ETF have gone for Black Rock which was and some of this you guys have already heard I know we just had James on the podcast which was most of the the buying of the ETFs at least of I shares anyway is not it's not big institutions by any means she said that they don't expect that for quite some time she said basically although it's available and like the pipes are now there for people to buy or companies to buy they're not recommending them yet and they don't have the approval to do it and there's a few reasons why advisers still just need to learn about it and then secondly they actually just don't have approval and because crypto or Bitcoin in general is

so risky I guess or more volatile so it's considered a risky asset they have to get certain approvals from committees and there's only certain allocations and percentages that these institutions are allowed to actually put into the Bitcoin ETFs and they don't really have approvals for those yet and so she said it'll take six months to two years unless they start to change the rules and the benchmarks but she's like even if they did that committees would have to agree and that's not an easy thing she said people aren't fully sold on why Bitcoin or crypto is something that should be portfolio and then she actually talked about so I'll say a couple more things ETFs first and then I'll talk about their investment thesis which was quite quite interesting the other thing that was interesting was she said it's mainly crypto people buying the crypto ETFs it's mainly people that

have never bought an ey shares which is the the Black Rock ETFs it's mainly people have never bought an ey shares ETF before and so they actually see this as a very powerful tool for Black Rock and ey shares in general because it's almost like a lead magnet it's like bringing in new people into the ey shares world and so they think that they're going to start to see more people bu buy this ETF and then go buy others ETFs outside of just the Bitcoin and the crypto one so which they didn't expect that that wasn't a thing that they were thinking was going to happen when they when they launch so I think that was pretty cool and then lastly I'll just say on their sort of thesis on why Bitcoin ETF one of the things she said was people tend to bucket Bitcoin

as a as a risk on asset and what she said is like I agree that Bitcoin is a risky asset in crypto at large although she actually sees them as two different things so we'll talk just Bitcoin first but she sees Bitcoin as a risk on or sorry a risky asset but she doesn't see it as a risk on asset like most people do and one of the examples she gave was when there's geopolitical events oftentimes people go risk off and they move out of of their riskier assets that could be tech stocks could be crypto could be whatever she says one of the things that's interesting about Bitcoin though is that because it's the only thing open on Friday nights Saturdays Sundays if a geopolitical event happens then or at night when markets are closed Bitcoin gets hit the most right but what they found is that every time Bitcoin

comes back and does so much better it's the fastest horse and so she actually doesn't see Bitcoin as a risk on asset because it actually performs much better in riskof times like when SBB and some of the US Banks were failing was it last year in 2023 early 2023 Bitcoin did extremely well right and so they've noticed that and that's one of the ways that They are promoting Bitcoin and they just put out an investment thesis uh a couple weeks ago promoting Bitcoin as part of a diversified portfolio and what she said is with ethereum people see it as a a Tech play and so it's hard to get them right away to buy the ETF because if they already have you know the NASDAQ or they're holding Apple ethereum doesn't give them any additional at least what she thinks additional

diversification but Bitcoin does because it's not necessarily a risk on asset and acting the same as like tech stocks do so that was just an interesting way that I realized that they were kind of thinking about Bitcoin uh and crypto at large so a lot of really cool insights there's a few more maybe we'll dive into it any questions you have so far no I think the only thing I want to say is I find it very bullish to hear her say that we need to wait 6 to 12 months before or six to 24 months before we can get these like institutions to start open their pipelines more basically and this part of the conversation we had with James was he basically said he actually said three years was how long

he thought it might take so the time is like it's not fast and it makes sense these are head large Banks large institutions they take time to push this through but he said it's basically like there's a you know a wall in that pipe right now and you can't even get through even in Black Rock it's not fully everyone on board saying we love crypto we want to use crypto right it's it's getting there a lot of the things in crypto they they don't agree on what she did say was tokenization of course we hear larf talked about this all the time that's one that the board or the the executives do fully agree on that we think tokenize ass is going to be a big thing it's why they're playing around with Biddle already right tokenizing bonds and treasuries they're doing that but what she said is that's actually a

very small she called it like extracurricular thing that they're doing at Black Rock and so that's actually just a test it's not that big in Black Rock most people are not that bullish on bidd and it's a thing where they're doing it and it's a small very small team I think it was like I forget the number so I won't even say it but it's quite small and they said basically they're hoping to see some results and if they do it'll start to kind of build a flywheel and get more and more things the one thing that the entire executive does agree on at Black Rock is stable coins and new rails for payments and so that was the one thing where they're all in agreeance with which is pretty cool and I think quite interesting but the one my big takeaway from that week and

we actually everyone had to go around and say what's the one thing you took from from this weekend together and mine was actually something Samara said which was you have all these crypto people who are very we have these strong values in crypto right we want permissionless technology we want self- custody and a lot of people especially the bitcoiners are like down with the banks down with the institutions crypto is our way to go Bank list and the thing she said is like look I get it you know it it is a great thing to self- custody like I understand it but she's like the reality is it's just not going to happen you don't realize one how powerful these institutions are how much money they have but also just the the regulations in the risk they have to take or can't take sorry so they can't just go and and

go all fullon on crypto it's just not possible right now and so if you want to get trafi on board which I think we all know understand that we do need to do right like one of the ideas of crypto outside of just like cussing your own assets is a new payment rail for how we you know use Merchants how we pay for things how we use stocks how we do all this stuff and we need obviously the trafi world on board for that but she's like right now we're really butting heads because crypto's so like we're bankless and then trafi so kind of not that and but there is a lot of interest and a lot of incentives that can be aligned if the crypto community and the trapy community can kind of meet in the middle somewhere and she kept talking about what is that middle how can we get

to that middle and so payment rails was one big thing stable coins is that but she just said like we've got to get get our heads out of this like full Rogue like crypto ethos and values like she says I think we'll get there at some point but it's not in the next year or five years or 10 years it's a long ways away and so we have to play and be good and make friends with these trafi teams if we want to really get crypto to make its way into mainstream and that's also why we need to educate everybody in Our Generation on crypto because we not we might not be running these institutions today but we will be in the next 10 to 20 years yes what were her thoughts on the election in the US right this was

actually quite interesting that we we discussed and it was actually just kind of a side conversation but one of the things that her and black rock were actually quite concerned about was and and actually they're not putting on as much risk as they could or or I think they're recommending to their whoever it is that they actually hold back on risk right now because they're unsure about what's going to happen with this election I don't mean who's going to win the election but if it's actually going to be done fair or not and if it's not done Fair we're going to have to do these recounts and it could really extend things out and if that happens as we talked on the show a bunch markets don't like uncertainty and so we keep saying well the uncertainty is done on November 6 when the election happens and

she's like I'm not sure that's going to happen it might be much much much longer prolonged if it happens the way that people are sort of projecting and think it's going to be whether it's like falsifying votes or whatever it's going to be whatever gaming these these you know politicians end up doing and so she's actually quite nervous about that she brought it up a few times which I thought was quite interesting I didn't think it would be such a big deal for them but she kept saying that was a big issue and a big worry of of Black Rock and and do you think that that is leading is that obviously is affecting Black Rock and their decision to advise clients to maybe buy the ETF right now but let's extend that to other institutions yeah yeah I think it's a concern of of not just black rock I

think it's a concern of the trafi world the bigger institutions and so we've always said like we probably got to wait for the to finish it's just um will it finish November 6 I I hope it does we just we have no idea and it was a thing she continued to bring up two other points that I want to touch on that you shared with us shared with me before we started recording is she has a son and she has lots of thoughts on the younger generation and their views on crypto yeah this was actually a a conversation that she brought up but then a bunch of us had throughout the retreat which was younger kids are are becoming more and more financialized they're getting interested in investing much much much earlier I think her son was like still teenager she 17 or something like that

already getting interested in trading and she thought that was a great thing right of course like I'm gonna let him do whatever if he makes mistakes does his thing but the the interesting thing she said is I think the way that he's going to invest is based on the people he follows on Twitter right or sorry on on Tik Tok TT proba and so I was talking about this with a few others at the at the retreat as well which was like first we were saying there's not a lot of people that really invest in the world like if you like in the grand scheme of things there's not that many however it is getting more and more and more and I think it's why we're seeing things like poly market and gambling and sports betting and all these things becoming more and more popular in the world and I

think a lot of this is becoming is happening because the younger generation it's more normal for them they're really getting in I think it's because of social media probably but they're getting into let's say betting they're getting into investing and I think that's good I think that you want to start taking control of your money at a young age but this is also what changes the the Dynamics over time is as this younger crowd comes and becomes a bigger part of the investing world that's going to really change markets she said since she's been in markets for for many years I think she said 25 years she said since 2008 markets have changed a ton since the the great financial crisis right so obviously that was a big thing then she said social media and now crypto are really going to change the Dynamics of of finance and so she's one

excited about it two she's a little bit concerned and worried about it probably just as a parent you know you're going to be a little bit scared but I think overall uh more and more people are becoming interested in investing and I think that's a good thing and crypto I think enables that even further for sure for sure and you mentioned two 2008 being a key milestone for markets what does Black Rock think about using historical data before 2008 versus I mean her her opinion was just like I'm unsure how valuable data is pre2 2008 I don't think it's a black rock or it might not be a black rock opinion I don't know but it was just an interesting take that she's like things are changing now so fast that it's really hard to look at the way things

used to be because she's like markets are just so different than what they used to to be and I mean as AI comes in it's going to get even more and it's going to be a very very hard thing for I think the older generation to keep ahead of and keep their eye on so anyway it's gon to be a it's gonna be a crazy world out there that's for sure okay let's shift from one of the biggest financial institutions in the world I mean the biggest asset manager in the world to one of the biggest tech companies in the world Google who is also at this Retreat what is going on at Google interesting blockchain you know we hear PayPal getting into crypto stripe getting into crypto and a lot of these sort of fintech companies getting into crypto but we don't hear a lot of the like

bigger tech companies the Amazon who was supposed to but then backed out uh Apple Etc but Google as sort of an infrastructure and a data company is actually doing so much behind the scenes for crypto that I did not realize and I thought it was quite interesting we were actually having breakfast and uh and the guy from Google I won't mention any names but was just talking about some things and he said a few things and I kind of sat there and I was like wait did he just say that and like the conversation started moving to something else and I was like hold on everyone at the table can we just Circle back did you just say that and uh so there's some pretty interesting things we'll talk about a few of them one the one thing Google wanted to do first was data right

and so they wanted and there's so much data on chain and so immediately when the first thing they did when they set up their sort of like crypto or web 3 sector in their company was they wanted to run validators for the blockchain so they could actually get data and so the first thing that they did was say hey we need to buy x amount of eth to run x amount of validators okay and so uh they own ethereum to run some validators then they did the same thing with salana uh they did the same thing with Aptos uh I believe suie and a bunch of others okay so there's a whole list of crypto that Google actually holds on their balance sheet now they don't disclose it because it's not big enough yet so they don't need to but what's interesting is they are validating which means they're

earning rewards monthly and they're not selling it and so that was one quite interesting that allows them to do a bunch of things they're building some products with that uh and doing some cool like kind of backend stuff they built like rpc's and things things that I think most of our our audience doesn't really care about um but anyway they are pushing the industry forward on the backend stuff for developers and things so I thought that cool but then we got to talking again about stable coins right this seems to be the use case for all of them and Google is obviously very Global so they have clients from all over okay uh many clients that are also in crypto and again from many different countries and they always have this problem at least their their Treasury and payroll department of the risk around currencies right you think they

do a bunch of business in Argentina but Argentina uh the peso inflates at 200% okay so companies like Google what they do is they either have to buy buy like in Argentina for example it's hard to get dollars you actually can't in many cases as a business and so what they do and Michael sailor talked about this is they'll buy things like real estate to hedge their currency risk let's say a client pays them I don't know $20 million in pesos well if they just hold on to that that 20 million is going to be worth 10 million very quickly right and so instead they'll buy like a a corporate building and that's what they do and they buy and sell real estate because it at least holds value I mean Michel Michael sailor one of the reasons he started doing this was he had a

business in Argentina and he had all this money is like $100 million he couldn't get it out when it started collapsing so he bought a yacht I remember him telling the story and I was like what the heck uh but Google actually interesing is doing somewhat of the same and they just have to there's not really a choice and so the the crypto team started saying let's start using stable coins right and obviously it's not a thing that just like happens they the the guy that's in in um at Google that's been in crypto he's been in for forever and he's been at Google for a while he's been telling they need to get in crypto and it's slow it's tough these institutions are huge there's tens of thousands of employees like Black Rock they've heard about it for a while they've been watching it but

it took so long to really get into it the same is true with Google but just recently they've started to allow customers and this is public knowledge they' started to allow customers to pay in stable coins coinbase is the first one to to pay in a stable coin and So coinbase currently is paying for whatever it is that they're they're working with Google on in stable coins and what the the the team that the treasury team is realizing is like this is the solution to when you have customers in Argentina or in turkey or in wherever else there's currencies that are inflating and they're realizing this very quickly and they they realize that it's cheap it's fast it's easy they don't have to worry and hedge risk it's a whole different world like you think about buying real estate which is not a

thing that's very liquid and easy to do and takes a lot of people very expensive in terms of fees to just using a stable coin and it completely changes it and so they've started it with one I think they now have their second customer which everyone would know but it won't say the name who's now paying in stable coins and they think that this is a thing they're going to be do more and more and more uh and so basically what he said to me was like look I can't get everyone in Google to agree and just go all in on crypto but if I slowly start to do things he's like for example when we started to run the salana validator that was when salana was around eight bucks now salana is at 100 and whatever he's like do you think that someone in Google

noticed that their balance sheet just went up x amount now it's not a sign significant amount to what you know Google's balance sheet really is but it's enough that people are like whoa that's kind of crazy right and then same with the stable coins thing where like it's just slow it's it's not a big part of their business at all it's a tiny tiny little bit but it's teaching these people in the treasury about this idea that stable coins exist and it's a way better way to run a business in terms of their finances and so he's like we're like slowly kind of like building our web throughout the the Google World he's like more and more of the developers and the people in there starting to understand it more and more of the like executive team is starting to understand the benefits of it and he's like it's

only a matter of time until this like real this flye just really starts to take off and it's like you know slowly then what is it gradually then all at once or whatever yeah like same idea with Google and I think Samar was kind of saying the same idea with black rock which is um which is quite exciting very exciting one more that you spoke to that I want to touch on is one that is kind of polarizing for crypto is JP Morgan Jamie Diamond Head of JP Morgan yeah has been historically not so positive towards crypto yeah but at the same time JP Morgan is actually quite active JP Morgan has the largest crypto team of every Bank in the entire world they are at they said uh several hundred so it's somewhere between like 200 and 300 employees that are on their crypto team

and I mean everyone's heard of the JP Morgan coin or some people have and they they had this chain and look it's a permission it's basically they copied ethereum this is back in like 2017 or something they copied ethereum they launch this like this token or this JPM coin it's basically a stable coin and it's permission no one can use it like except for them and so it's private so like people don't love it but it's it did actually provide a really good service for their infrastructure and for like their banking Partners Etc it's like it works for them they actually looking to level that up now and they're they're looking at is it going to be a layer two is it going to be something else they're trying to figure out what is the next step for them so that's quite interesting but then they just

have a team of two 300 people that are building products for other institutions for other Banks doing a ton of stuff and it's actually I guess a very very impressive team and so you have Jamie Diamond on one end saying he didn't say crypto's trash but he basically said Bitcoin is a pet rock um although I would say Jamie Diamond did say he thinks crypto there's a future for crypto he just doesn't think there is for Bitcoin which is kind of funny but their team is massive and from the people I spoke I met multiple people from JP Morgan he said they're actually an incredible team they're very smart they really get crypto now they're not building products for you and I they're not for crypto natives they're doing it for the institutional world but still that's teaching them that's bringing them on chain and uh and I think it's

doing a lot for the crypto space as well so that was kind of a shock to me to be honest but um again another massive institution that takes this seriously right one of the interesting things that I learned from from some of the guys that we were talking to whether Google Etc was almost every institution in the world and every bank is actually building a crypto right now they all have a crypto team the problem is is that many of them don't have a p&l with that team meaning doesn't matter if they actually make money or not it's one of those like those like back corner teams that are like innovators or they're like the research and development teams and it doesn't matter how much they spend it doesn't matter what they if they make any money it's kind of like Amazon did this Amazon was supposed to launch a

Marketplace we all heard about it like was it last year two years ago but it wasn't a team with a p&l so they never had to actually launch whereas the teams at Black Rock the teams at um Google they have a real p&l which means they have to actually succeed they have to launch they can't just like Let It fizzle out got to launch it they've got to keep iterating on it JP Morgan doing the same and hopefully more and more institutions will start doing that because right now they are all building they are all testing and I think what they're waiting for is just regulation once I think regulation kind of like um gets clear in the US specifically then I think they'll start to give p&l to their teams and you'll start to see these Banks institutions building real products and doing real stuff I think

that's going to be really cool I think a lot of it's going to be about stable coins in the early days and that's why we're seeing how many institutions right now launching stable coins already so it seems like that is just so obvious that that's going to be a a massive massive wave and it's it's coming soon or it's already starting I'd say it's it's incredible we've talked so much recently about institutional demand for buying crypto assets and we talked about how that institutional demand is is growing very slowly but what you're talking about here is also the major Enterprises the biggest companies in the world whether they be finance companies or just tech companies like Google yeah are also experimenting and building we just don't know it yet the most bullish thing

that can happen right now like last cycle we had the Teslas put it on their balance sheet we had Michael sailor whoever else and that's great that's cool but it's it's kind of shortterm and it doesn't do much more than that right whereas now you have Google JP Morgan Etc starting to build business cases and use cases for crypto saying and showing coinbase is probably the leader in this right moving a lot of their stuff on chain saying that look we are saving this much on operating costs by using crypto we are saving this much on our FX cost right by using crypto and the more that we can start to not just do that but then show people on their teams and other teams that this is real and it works and it's possible and it's not that hard it's in fact it's actually

much easier than trying to figure out the trafi rails and how all that Financial system works that to me is super bullish because it means we're ingraining crypto in in institutions it's not just a speculative thing it's a thing that we really use because it makes our businesses better more profitable because that's what all these institutions want yes they want to speculate sure what they really want is they want to save money and if they can save money on transactions and moving money around they're all going to do it and so if if Google can be a leader here to show them that this is possible or coinbase can or many of the others PayPal that's going to proliferate really really fast yeah yeah it's it's just I mean bullish times all around bullish times all around markets maybe not but uh at least behind the scenes it

was very I left that retreat was like oh my God we are not bullish enough you know I was like get me on this podcast we are not bullish enough well we appreciate you joining us today Kai everybody listening and I got to remember remind you that we are on the road to 10,000 subscribers on YouTube right now and we need your help so make sure you hit that subscribe button on YouTube and you could win a bunch of free prizes including our crypto investing masterclass which is six hours with Kyle himself giving you the step by steps of what you need to do to create your portfolio succeed and build wealth for you and your family that'll change your life thanks so much for listening everybody have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you

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